Group 1 - The surviving spouse of a deceased co-owner of a property receives a step-up in basis to the market value at the time of death, while also being eligible for a $250,000 capital gains exemption upon selling the property [1][4][6] - A step-up in basis resets the tax basis of an inherited asset to its market value at the time of the original owner's death, which can significantly reduce taxable gains for heirs [4][5] - The capital gains tax exemption for the sale of a primary residence can be up to $500,000, provided the owner has lived in the home for at least two of the previous five years [7][8] Group 2 - The basis of an asset is the amount paid for it, which is crucial for calculating taxable gains when the asset is sold [3] - The Section 121 exclusion allows homeowners to reduce or avoid capital gains tax on the sale of their primary residence, subject to certain conditions [7][8]